Millennials and the Future

of Corporate Governance
Dr. Ben Teehankee
Professor of Management and Organization
De La Salle University
Outline
1. The importance of corporations in
Philippine national development
2. Challenges in fulfilling the Philippine
corporate vision
3. Institutionalizing good corporate
governance
4. Where millennials can contribute
The importance of
corporations in national
development
 The Philippine Constitution on
Corporations and the Common Good
ARTICLE XII: NATIONAL ECONOMY AND PATRIMONY
Section 6. The use of property bears a social
function, and all economic agents shall
contribute to the common good.
… corporations shall have the right to own,
establish, and operate economic enterprises,
subject to the duty of the State to promote
distributive justice and to intervene when
the common good so demands.
 The Purpose of Philippine Corporations
Explanatory Note to the
Corporation Code of 1980

“…to establish a new concept of business

corporations so that they are not merely
entities established for private gain but
effective partners of the National
Government in spreading the benefits of
capitalism for the social and economic
development of the nation.”
• Essentially social legislation
• Predates the CSR movement
The SEC’s expanded view of corporate
governance: A moral compass
• “the system of stewardship and control to
guide organizations in fulfilling their
long-term economic, moral, legal
and social obligations towards their
stakeholders.
•…
• “Its purpose is to maximize the organization’s
long-term success, creating sustainable value
for its shareholders, stakeholders and the
nation.
SEC Code of Corporate
Governance – Nov 2016
• Principle 16:
• The company should be socially responsible
in all its dealings with the communities
where it operates.
• It should ensure that its interactions serve its
environment and stakeholders in a positive
and progressive manner that is fully
supportive of its comprehensive and
balanced development.
 The Philippine Constitution’s Vision:
Towards a Socially Just Economy for the
Filipino people

8
 The Corporate Business and its Main Stakeholders
Government
Investors
Creditors
Capital
commitment Fair & Funds Taxes, Legal license,
attractive Repayment compliance & infrastructure
returns & returns cooperation support
& law enforcement

Board
Direction & Performance
Oversight accountability
Value through Customers
Suppliersproducts and Products & services for
Managers human development
services
Purchase &
Fair
patronage
compensation Employees
and development Community meeting Trustworthy Community &
support basic needs of members towards service & Society
integral human development behavior
Company
Trust
Renewal Resources Current
Environment Sustenance Future
Renewal
Large corporations drive the economy
The stock market continues to grow
2016
P14.4 trillion

Market Capitalization ( in billions)

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
1994

1995

1996

1997
1998

1999

2000

2001

2002
2003

2004

2005

2006

2016
Year
•Foreign companies
•Domestic companies
Courtesy of Atty. Francis Lim of the PSE
Challenges in fulfilling
the Philippine corporate
vision
 When corporations fail to meet the national vision
Government
Investors
Creditors
Capital Lack of
Funds Taxes,Tax evasion; Legal license,
transparency;
commitment Fair & Misuse of credit
attractive Repayment Corruption
compliance & infrastructure
Expropriation support
returns & returns cooperation
& law enforcement

Board
Direction & Performance
Oversight accountability
Value through Customers
Suppliersproducts and Products & services for
Violations of
Managers Unsafe or
services human development
job Security; Unhealthy products
Delayed payments No work-life orPurchase
services&
Fair balance patronage
compensation Employees
and development Community meeting Trustworthy Indecent
Community
or false &
support basic needs of members towards service & Society
public
integral human development behavior advertising
Company
Trust
Renewal Resources
Waste dumping Current
Environment Sustenance Future
Renewal
 Share of Large Corporations in
Gross Domestic Product
GDP 2015 = P13.3 T
Number of Large 2015 Total
Share of GDP
Enterprises Revenues

Top 100 Corporations P4.7 T 35%

Top 200 Corporations P5.8 T 44%

Top 50 Conglomerates P6.2 T 47%

Source: BusinessWorld Top Corporations
SOURCE: PSE ‘s Stock Market Investor Profile 2015
ASEAN Stock Markets
As of August 2017

Listed Companies

901

753
667
555

379
340
269

BM SGX SET IDX HNX HOSE PSE

Source: World Federation of Exchanges

 Ownership Concentration among 100 Largest
Publicly-listed Corporations – AIM Study
• In 83/100 companies, more than 35 percent of the
shares were owned by one family or individual.
No. of companies
Source: AIM-Hills Program on Governance
Corporate Governance Trends in the 100 Largest
Publicly Listed Companies in the Philippines (2009)

17
Percentage of company shares owned
Unemployment
 The Philippine
development
dilemma:
Growth and
progress …

The challenge to Philippine corporations 19

19
Philippine Poverty Map
Philippine
Poverty 2012
25% +
Institutionalizing good
corporate governance
 Institutionalizing Good Corporate Governance:
The 3 Pillars

Regulatory Pillar Normative Pillar Cultural Pillar

Laws Promotion of People’s common

Sanctions ideas about “good
“good corporate
and acceptable
Enforcement governance” corporate
behavior by governance
professions and behavior”
institutions
 The Regulatory Pillar

Regulatory Pillar

Laws
Sanctions
Enforcement
“I was greedy, yes.”
“When you misrepresent the nature of
your company, when you artificially inflate
earnings, when you improperly hide
losses, when you do things like that to
cause your stock price to go up, that is
stealing.”
“I’ve destroyed my life. All I can do is ask
forgiveness and be the best person I can
be.”
Andrew Fastow
Fortune, April 3 2006
Normative Pillar

Normative Pillar -- Promotion of “good corporate

governance ” behavior by professions and
institutions

Lawyers, accountants and managers will need to be

reoriented => “Beyond tick-box compliance”

Business associations and media need

to promote and recognize ethical
management (e.g. Enron’s Andrew Fastow
was named “CFO of the Year”)
The Cultural Pillar

Cultural Pillar -- People’s common ideas about “good

and acceptable behavior”

Schools, associations, media need to debunk feudal

ideas about property ownership as source of power.

“All power emanates from the people” – The

Philippine Constitution

Millennials will play a major role in this.

 Assessing the corporation’s
level of moral development
• Stage One: The Amoral Corporation – Pursues winning at any
cost; views employees merely as economic units of production.
• Stage Two: The Legalistic Corporation – Concerned with the
letter of the law, but not its spirit; adopts legalistic codes of
conduct.
• Stage Three: The Responsive Corporation – Interested in being
a responsible corporate citizen, but primarily because it is
expedient, not because it’s right; beginnings of codes of ethics.
• Stage Four: The Emergent Ethical Corporation – Recognizes the
existence of a social contract between business and society, and
seeks to instill that attitude throughout the corporation.
• Stage Five: The Ethical Corporation – Balances profits and ethics
so completely that employees are rewarded for walking away
from a compromising action; includes ethical issues in training;
has mentors to give moral guidance to new employees.

Source: Reidenbach & Robin

Where millennials can
contribute
Millennials (also known
as Generation Y)
• demographic cohort following
Generation X.
• demographers and researchers typically
use the early 1980s as starting birth
years and the mid-1990s to early 2000s
as ending birth years.
Millennial motivational structure?
Millennial characteristics
• Millennials are more demanding, more in touch
and more skeptical.
• Social media adept so wants to express an opinion
and not merely told
• Smartphone generation – exceeded PC sales in
2012. Some millennials do not buy PCs at all.
“Living in the cloud”. AI on demand (eg. Waze and
apps).
• More informed about the problems of the world:
social, economic, environmental, technological
Are millennials the missing voice
in the board room?
Transparency and accountability
• post-Enron world
• aware that dishonest financial reporting, ignoring
government rules and a general lack of
transparency and accountability can be disastrous
for business.
• higher respect for proper government regulation
and public opinion and look at these as inputs for
company welfare and not as obstacles to doing
business.
Are millennials the missing voice
in the board room?
Inclusive business
• aware of the growing and disturbing economic
inequality in the world.
• the wealth difference between the rich who own
capital and those who rely only on labor income
will tend to grow over time.
• Millennials will open up equity to broader
ownership.
Are millennials the missing voice
in the board room?
Environment friendliness
• They will push for a cleaner environment because
their futures will literally depend on it.
Millennial Calling for Conscience
“A millennial wants to see an outcome of good
governance. They are only interested in the
conscience of the company - how it (the
product) is made, what it does to the community
and do they care? Companies need to show
transparency, authenticity, ethics, a conscience,
and if they don’t, millennials just vote with their
feet.”
The millennial factor in corporate governance
Michael Judin, Report on Corporate Governance
Issues for the future needing a
millennial voice
• disruptive challenges looming in the horizon:
• the growing shared economy (e.g., Uber),
• cryptocurrencies (e.g. Bitcoin),
• artificial intelligence and robotics (e.g.,
driverless vehicles),
• managing social media reputation in the era
of fake news,
 Using Corporations to Build an Inclusive
Society: Before

v v v

The Threshold for

Integral Human
Development

39
Society and its members
 Using Corporations to Build an Inclusive
Society: After

v v v

The Threshold for

Integral Human
Development
vv v v v v v v

40
Philippine
Poverty 2012
25% +
v

42
Thank you